The bottom line is…

Does profitability really count for Middle East channel players?

For all the doom and gloom that has tainted the market, there are indications that the Middle East channel is starting to respond to some of the painful lessons that have been dished out this year.

The most pertinent of those lessons has come in the form of the enhanced focus companies claim to be putting on profitability, now that they have had time to reflect on the strength of their books.

Conversations I have had lately with vendors and distributors about the health of the market have tended to gravitate towards the actions being taken to redirect emphasis to bottom-line growth. "Our priority is profitability; we are no longer chasing sales at any cost," they cry.

Whether you choose to believe them is another matter entirely, but the fact that lip service is being paid to this thorniest of issues could, I suppose, be interpreted as a significant step forward during these troubled times.

With sales volumes no longer as resilient or predictable as they once were, companies have suddenly woken up to the fact that they need to shore up their profitability if they wish to survive.

The extent to which they genuinely give it the attention they insist it deserves is almost certainly going to be determined by the individual culture of each company, however.

Take an independently-owned distributor or reseller that has traditionally concentrated on chasing sales and given minimal regard to profitability, for example. While the actual process of change might be difficult, the ability to execute is probably quite favourable because decisions can be made swiftly and without deliberation.

Distributors, for instance, can analyse the profitability contribution of each brand they carry and act accordingly. Resellers, equally, can choose to turn away business that threatens to jeopardise bottom-line performance.

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Whether such change can be purposefully engineered at vendor level remains questionable though. Certainly the nature of the business that the vendor is in plays a part.

After all, the large volume vendors that are often heard crowing about the importance of profitability are usually the ones with internal reward cultures that are obstructive to say the least.

In some ways, the downturn has merely exacerbated the problems these vendors face because their EMEA management teams sitting in Europe are now looking to the region to compensate for markets that are in even poorer shape elsewhere. The pressure to bring in sales and meet often-unrealistic targets therefore overshadows any commitment to safeguard profit.

Consider, too, the discounting that is being done by vendors, the extended payment terms currently offered to the channel and the aggressive sales-out tactics that are now commonplace in the region. These all point to the fact that generating sales is unlikely to be displaced as the number one financial priority anytime soon.

That doesn't mean vendors can't influence profitability in the channel through other means, however.

For a start, the structure of their partner programmes and the incentives given to partners truly capable of specialising and adding value can be hugely influential. How they evolve these, especially in the short-term, will reveal which vendors are serious about supporting their rhetoric.

The increasing frequency with which the subject of profitability is now cropping up in conversations between Middle East channel players must be regarded as a positive sign given the current market adversity. It now remains to be seen who is capable of proving their sincerity.